Lawmakers target short sale timeframes

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Have you heard of the Prompt Notification of Short Sale Act? No, it’s not law yet, but if passed it would require lenders to respond to short sale requests within 75 days.

It seems even Congress has figured out that short sale approvals take too long. And, the proposed law calls for a real response, not just “Thanks, we got your request …”.

Lenders would be required to respond in one of four ways:

  1. Acceptance
  2. Rejection
  3. Counteroffer
  4. Need for extension

The extension option could only be used for an additional 21 days, and would need to be accompanied by an estimated date for a final decision.

The law’s sponsors in the Senate include a liberal Democrat and two moderate Republicans: Lisa Murkowski (R-AK), Scott Brown (R-MA) and Sherrod Brown (D-OH).

In a rational world, two and a half months would seem like a long time to wait for a response to a simple request. But in the slow-motion universe of big mortgage servicers, this would be an actual improvement.

We’ll see if it moves the ball forward in a meaningful way.

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Good News for Anyone Considering a Short Sale

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Buried in President Obama’s $3.8 trillion budget for fiscal year 2013 is an important item for anyone connected to the real estate industry (which includes everyone, unless you live in a van): The President wants to extend the Mortgage Forgiveness Debt Relief Act of 2007, which is set to expire at the end of this year, through 2015.

This is sensible, and probably inevitable. Ending the Act now would be devastating for a housing industry still trying to regain its legs. But it’s especially significant for homeowners considering short sales. Let’s face it: If someone is thinking about a short sale now, they may not complete it before next year. What incentive would they have if they knew any forgiven debt would be subject to taxation? Not much.

This is good news for them—and for the agents trying to help them. You can include this in your narrative pointing out the advantages of a short sale over other options.

If you can’t remember what the Mortgage Forgiveness Debt Relief Act actually does, don’t beat yourself up: There’s been such a blizzard of new laws, programs, regulations and rulings lately that it’s hard to keep it all straight. So, here’s a good source (the IRS) to refresh your memory.

And to get ready for the coming short sale wave, here’s a good place to begin.

Refi—Or Short Sale?

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Refi madness is sweeping the nation. With the recent expansion of the federal government’s Home Affordable Refinance Program (HARP), banks have been deluged with phone calls requesting information. Call volume at Bank of America has been so high that they’ve had to refer requests to a “reservation system”, basically letting applicants know that they’ll get to them when they can.

With the new emphasis on refinancing, it may seem that short sales are out of vogue, but there are still plenty of homeowners that won’t fall into either the refi or mod basket. And as with any government program, many people will ultimately be excluded, and will need to move on to other solutions.

Here are a few points to remember in sorting out the candidates:

  • HARP refis are still only available to borrowers who have been current for six months, and have no more than one late payment in the previous 12 months.
  • Even eligible borrowers must find someone to perform the refi. Not all mortgage servicers are participating, and those that are may have their own eligibility overlays.
  • HARP doesn’t address junior mortgages, such as HELOC’s, which are often the real problem for homeowners.
  • Neither HARP nor most modification programs reduce principal balances. Thus, the underlying problem of equity loss is not remedied by either option.

That describes the people that won’t benefit from HARP. Here’s a description of those that would benefit from a short sale:

  1. Borrowers that can’t afford any reasonable house payment
  2. Unemployed homeowners
  3. Owners of second homes they can’t sustain or don’t want
  4. Homeowners that need to downsize
  5. Those who must move for employment reasons
  6. Borrowers that failed at a modification

That’s still a good-sized pool of people—and it’s not shrinking.

2012—the year of the refinance? Sure, for some.

The year of the short sale? Definitely.

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